Although many people are aware of the fact that when it comes to their estate and tax planning, they have a Nil Rate Band (NRB). They are unaware of a further relief known as the Residence Nil Rate Band (RNRB).
The RNRB has been available since 2017 and can be used to reduce the tax liability on their main residence. The RNRB is often overlooked or even missed, particularly where clients prepared their Wills prior to 2017.
- The NRB applies to all individuals and their estates. It is currently set at £325,000. The value of an estate up to £325,000 is charged at 0% inheritance tax. Subject to any further exemptions and reliefs, the value of an estate that exceeds the NRB is subject to inheritance tax at 40%.
- The RNRB, introduced in 2017, is an additional inheritance tax allowance which can be claimed, in specific circumstances, in addition to the NRB.
One of the requirements for an estate to qualify for the RNRB is that a person must leave their home, or a share of it, to their direct descendants. Direct descendants include children, grandchildren and also step-children.
The maximum RNRB has increased each year since its introduction. It is currently set at £150,000 and will soon increase to £175,000 on 6th April 2020. There are no further fixed increases of the RNRB planned, but from 2021/2022 the RNRB will increase in line with the Consumer Price Index CPI.
It is important to note that the RNRB begins to taper once an individual's estate exceeds £2 million. Once the £2 million threshold is exceeded, the RNRB reduces by £1 for every £2 over the limit. This means that, based on the RNRB figure of £175,000 in 2020/21, there will be no RNRB available for an individual if their estate exceeds £2.35 million.
If your Will was drawn up prior to the introduction of the RNRB, it would be worth reviewing it to see if it should be updated so as to qualify for the RNRB. There are also a number of additional conditions that must also be satisfied, so it is recommended to take advice to ensure that the RNRB can be claimed wherever possible.
Depending upon your business and personal circumstance you may also find that additional inheritance tax reliefs are available to you.
Taking advantage of the RNRB can be complex as it only operates in specific circumstances.
If you would like more information on this update or assistance with any related matters, please contact Oliver Kent.
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